Tuesday, October 16, 2007

A shaky foundation.

From today's independent.
"THE High Court has ordered the repossession of family homes in Dublin, Galway, Limerick and Sligo.

And a senior judge has warned that a slump in property sales is making it difficult for homeowners facing repossession to sell their homes -- despite dropping the purchase price -- in order to meet their mortgage debts and payment arrears.

In one of the starkest signs that mortgage holders are struggling to make ends meet, more than 45 repossession cases -- including 17 new applications by banks yesterday alone -- were heard or adjourned in the High Court in a two-hour session.

Four couples have been given a three-month stay on their repossession orders to try and reach a last-minute refinancing deal.

It was also revealed that one family apparently fled to England and abandoned their home when served with a repossession notice.

Lawyers have revealed that several debtors had attempted to sell their homes but were unsuccessful owing to the current uncertainty in the property market which saw potential buyers back down from purchase agreements.

Ireland's repossession figures are historically very low, but repossessions have been kept at bay courtesy of a buoyant property market that allows borrowers to clear their debt by making a profit on the sale of their homes."

It is very worrying to read that 45 homes have been issued with a repossession order in the highcourt. Worrying but not at all surprising. I know a number of people who are so unbelieveably over stretched that if I was in their shoes I'd never sleep a wink again. Every second advert on the radio suddenly seems to be some company or other offering remortgaging and loans, some even boasting that they will give you money even if your credit rating is poor.
Well, there's often a reason a person's credit rating is poor.
With the ridiculous rocketing of the property market in this country suddenly everyone is sitting on/living in an asset of grreat worth. But your home is just that , your home. It might be worth a bundle, but you live in it, so it's not like a piggy bank. You can't dip in and out of it to furnish a 90210 lifestyle, no matter how tempting. So okay, the house you bought in 2001 is triple what you paid for it. So is every other house. And now the prices are so elevated that the market has had the life blood strangled out of it. People are not buying, homes are not selling, there is blood in the water.
There's going to be a short sharp shock in Ireland over the next two years. We're haemorraghing manufactoring jobs, we're losing companies to more attractive cheaper work forces, our economy is riding on the back of the property market and right now that market is weakening.
My heart goes out to anyone who loses their home. It's a horrendous situation to find yourself in and must be soul destroying. But honestly, I don't see the 45 being the limit.



Anonymous Nonny said...

There is no doubt the economy if facing a downturn but house prices is a much of a muchness to people who are already on the property ladder. If house prices go up so will yours and vice versa. Even people who are only purchasing their first home if house prices come down interest rates will rocket, people who bought their homes in the early 80’s had to take out bridging loans and paid interest rates of around 15% and that meant you still had huge repayments it just went to the bank as opposed to paying of your mortgage. At the moment you have a huge proportion of people panicking, particularly those who have investment properties, that coupled with interest rates is stalling the market. I have no idea why investors would sell, as the general scheme of things would dictate, when the buying/selling of homes decreases the rental market remains buoyant. It is most definitely a good thing the market is levelling off, prices had got out of control. The thing that get me here is the banks, they should be made accountable for the havoc they are reeking, they are simply lending people far two much, it was my understanding repayments should be no more that 35% of your income, now for people who are forced to sell their homes this is obviously not the case, how can banks justify this lending?

10:45 a.m.  
Blogger Dr. James McInerney said...

If you go onto the daft website there is a message board and there is this poster, bless him, who is telling everybody, irrespective of the thread, that there is going to be a house price crash of biblical proportions. What I think is going on is that he is trying to talk the house prices down so that he can buy up a load of property. He seems to know a lorra lorra stuff about economics, so he ain't no amateur. Maybe he is completely correct, but right now there are apartments for sale in Dublin and the rental in those areas will cover an entire mortgage. You would normally expect rent to only cover 50-60% of a mortgage at the beginning.

11:12 a.m.  
Blogger fatmammycat said...

It's the crazy lending that worries me too. I understand a person willing to stretch his budget to the limit. But when companies are flinging money out knowing full well people are seriously going to struggle and maybe even lose their home in the long run, then their actions should be called into action. Isn't that why subprime lenders are in trouble right now in the states?

Docky2, I agree rent > mortgages on some apartments, but you've got to have the apartment rented first and you've got to make sure you have a tenant that doesn't stiff you on the rent. Even falling behind a month or two or three puts a lot of buy-to-lnvestors under serious strain.

12:08 p.m.  
Anonymous Nonny said...

Yeah it is, we are to an extent mirroring the collapse that hit the English house price market in the 80’s, now English banks are highly regulated. I cannot understand how our government can sit back and let this continue to happen, it infuriates me. Our economy is not specifically dependent on the housing market it is the service sector as a whole, now grants it the construction industry is a significant proportion of this but the government are doing nothing. We need multi national investment, it is what built the economy in the first place, and we need to move to a “Knowledge Based Economy” the government know this, economist know this but nothing is happening. I am buying and selling at the moment, I was in a hurry filling out the re-mortgage application form I neglected to specify how much I wanted, to a bank this would indicate I was looking for as much as they’d be willing to lend, when I got the loan offer a couple of days later I could not believe it had I have bought a house for that amount of money after I’d paid my new mortgage I would have been left with 162 Euro!!!

12:28 p.m.  
Blogger Medbh said...

It's so sad. And you're right, if every house is selling at 3xs what it was worth at the start of the decade then you're not really ahead of the game.
Lots of people in the U.S. are losing homes because they had such little financial understanding when they took mortgages they could not afford from scurrilous lenders who knew they could never pay it off.

3:52 p.m.  
Blogger Sam, Problem-Child-Bride said...

They used to say "put your money in real estate, there's nowt as safe as houses." Not so any more it seems.

The sub-prime mortgage sellers out here were scurrilous, there's no doubt about it but I reckon the borrowers have a measure of responsibility too. Many, many of the homes lost in the crisis out here were second homes bought by people who were told they could make out like bandits. Greed and the prospect of easy money encouraged them to take the risk of these lunatic adjustable rate mortgages. Now they want government aid to help them out of difficulties they incurred on their second homes? I think that's shit.

I'm all for a government rescue package for those people who are defaulting on their primary mortgage. The whole ethos out here, the whole idea of "success" hinges on the idea of owning your own home. It's very easy to see why first-time buyers and good, honest lower-middle class people (everyone is middle class in the US "blue collar" is as close to working class as anyone can bring themselves to say) could buy into the American dream if the downpayment on that dream is something they can easily afford for the first time in a long time- with the advent of the sub-primes. A package of aid to help these people out would ameliorate the economic downturn we're starting to see, but second-home owners who rode into the schemes on the back of snorting greed can frankly go and boil their adjustables.

Caution is good. Bullishness isn't always.

8:15 p.m.  
Anonymous Nonny said...

Sam, I agree to an extent but those people who are having their homes repossessed are mainly if not all owner-occupier of a principal resident, in short it is their only home. I have a second home that I rent, I don’t boast about it or see it as a one-way ticket to money vile. It is an investment. It will add to my pension fund, or pay for my future kids to go to university or perhaps I may need it for something important should I or my family ever need it. I am not worried about the collapse of the property market as it will always pay off provided you have patients and have enough to tide you over. Many investors seem to have been ill advised, purchased properties in bad locations, don’t have funds set aside for unforeseen circumstances, they didn’t plan ahead or don’t know how to manage. They are simply not business minded individuals, banks know this, they engaged in enormous media campaigns encouraging people to invest in property and lend extortionate amounts of money to ordinary people, after reading this today I asked five people all home owners if they knew the difference between APR and (note) interest rates not one of them did. Everybody wants to get rich quick and the banks manipulate these people use them for all they can get and screw them, ruin their lives. Yes by the very nature of a second mortgage people take a risk but the banks are staking impossible odds against them and leading them to believe they will be ok.

11:12 p.m.  
Blogger Jessica said...

I'd like to say about second mortgage. Many people forget about cautious. Remember, you already have one mortgage on your home and the mortgage lender has a first charge on your home. That means that if you stop paying, that lender can seize your hose. A second mortgage puts a second charge on your home, meaning that the second mortgage as well as bad credit mortgage provider can take a share of any proceeds if your home has to be sold. What is worse, if you pay the first mortgage but fail to pay the second, that mortgage provider can seize your home, even if the sum involved is relatively small.

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